'Payrolling' benefits in kind

From April 2016 the government is introducing a voluntary framework to allow employers to payroll most employee benefits in kind (benefits) rather than report them at the end of the tax year on a form P11D.

In order to payroll benefits an employer will need to include a notional value for employee benefits as taxable pay in the regular payroll cycle. By doing this the income tax due on the benefits can be collected in real time.

Currently the tax due on employee benefits is collected through an adjustment to the employee's tax code. The way that tax codes work means that HMRC try to collect the right amount of tax at the right time. However, when benefits start/stop or are changed there can be a delay in changing the tax code which may result in an employee under or over paying tax.

One of the advantages to employers is that if employees' benefits are payrolled then forms P11D will not need to be completed. Payrolling is not possible for some benefits such as living accommodation, beneficial loans and credit vouchers and tokens.

HMRC have confirmed that there will be no change to the process for reporting and collecting Class 1A NICs. Employers will still need to complete a form P11D(b) after the end of the tax year and calculate and pay the 13.8% employer only liability.

Employers need to register for the new service by 5 April 2016 as HMRC cannot process changes in year. HMRC are advising that employers should ideally register before 21 December to avoid being sent multiple tax codes for employees.